Compliance & Regulation

Deutsche Bank Securities is the largest unsecured creditor of Taylor, Bean & Whitaker and is owed at least $42 million, according to a supplemental filing in the bankruptcy case of the nonbank lender. A spokesman for DB had no comment at press time. The claim is labeled as "disputed" in the filing and no additional information is provided. The second largest unsecured creditor is James G. Hicks of Lawrenceville, Ga., who has staked a claim for $9 million. Mr. Hicks, however, is not listed in the telephone directory as a consumer or business. The third largest unsecured creditor is RBC capital Markets, New York, which is owed $2.2 million. Meanwhile, the Office of Thrift Supervision has hit Platinum Community Bank, owned by TBW, with a cease-and-desist order, telling it to stop unsafe and unsound practices. The C&D, which is available on the agency's website, says the depository has failed to maintain accurate books and records, has not operated independently from affiliates and is having liquidity problems. The bank issued a statement saying it's working closely with OTS to address the issues in the order. In July 2008 TBW bought controlling interest in Platinum Bankshares, the holding company of the depository. The parent was based in Rolling Meadows, Ill.

Federal Deposit Insurance Corp. officials are hoping the worst may be over for single-family mortgages but they fully expect the performance of commercial real estate loans will continue to deteriorate. The agency reported that 6.8% of single-family loans held by banks and thrifts are 90 days or more past due or considered uncollectible, a rise of 220 basis points over the past six months. FDIC-insured institutions charged-off $8.6 billion in single-family loans in the second quarter, a 15% increase from the first quarter. However, only $15.4 billion of single-family loans became "noncurrent" (as FDIC calls seriously delinquent) during the second quarter, compared to $27.3 billion in the first quarter. FDIC officials are looking for this decline to become a trend. The noncurrent rate on CRE loans hit 2.88% in second quarter, up from 2.25% in the previous quarter, and $7.1 billion in CRE loans became noncurrent during the quarter. The FDIC expects further deterioration for several more quarters.

James Whitaker, a former Orchard Lake, Mich., resident, pleaded guilty before U.S. District Judge Bernard A. Friedman to filing fraudulent bankruptcy petitions to defraud his mortgage lender and forestall foreclosure on his mortgage and take possession of his property. According to Terrence Berg, U.S. attorney for the Eastern District of Michigan, in 2007 Whitaker's mortgage holder, Deutsche Bank, began foreclosure proceedings on a $970,000 mortgage Whitaker had obtained on the residence he occupied. However, he held title to the property in his sister-in-law's name. When the bank began eviction proceedings to take possession of the property, Whitaker had a bankruptcy petition preparer file several bankruptcy petitions in his sister-in-law's name to halt eviction action. By doing this, the value of the property substantially decreased. Sentencing for Mr. Whitaker is scheduled for Nov. 17.

Some 41 people and four companies have been indicted for engaging in a massive mortgage fraud scheme to purchase 453 homes using $44 million worth of fraudulent loans. The state charges are the result of an 18-month investigation by the Cuyahoga County Mortgage Fraud Task Force in conjunction with the Ohio Organized Crime Investigations Commission. Ohio attorney general Richard Cordray singled out Uri Gofman of Beachwood, Ohio, as the scam's ringleader, saying he enlisted family, friends and others to invest in his real estate company, Real Asset Fund, with promises of profit. Mr. Gofman's alleged enterprise began with seed money from an investor who transferred funds from a bank account in Latvia. The scheme involved using straw buyers to purchase homes, falsely claiming home improvements were performed on houses in order to refinance them and then selling houses to unqualified buyers with the assistance of real estate agents, mortgage brokers and title companies. The defendants, who were unavailable for comment, allegedly siphoned off more than $31 million in profits from their criminal enterprise. Eventually, 358 of the homes fell into foreclosure. The Cuyahoga County Mortgage Fraud Task Force was formed in December 2007. To date, 289 defendants have been indicted on mortgage fraud charges involving $111 million in loans on 812 homes, 616 of which are now in foreclosure.

The Federal Housing Finance Agency has named H. Ronald Weissman chairman of the Federal Home Loan Banks' Office of Finance. Mr. Weissman has been a senior partner in Ernst & Young's Financial Services Office since 2002 and also worked at Arthur Andersen. Ed DeMarco, the acting director of the Federal Housing Finance Agency, said Mr. Weissman's accounting background "will be critical to overseeing the important role of the Office of Finance in preparing the quarterly and annual combined financial report of the FHLBanks." The Office of Finance issues the debt of the 12 Home Loan banks and publishes a combined financial report for the system. Mr. Weissman succeeds Charles Bowsher, who resigned in March 2009 after refusing to approve the system's first-quarter combined reports. He ordered an independent study to explore options for making the system's accounting more transparent. That report came out earlier this month and called for greater centralization in the system's reporting, a move the Home Loan Banks are resisting.

Federal regulators are seeking information from banks and thrifts on how a new accounting rule on securitized assets will impact their balance sheets and capital levels. Financial Accounting Standards 166 and 167 can trigger consolidation of securitized assets on the balance sheet if a bank controls the servicing or provides support for assets in the trusts. "It will require institutions to bring a lot more assets on the balance sheet," Comptroller of the Currency John Dugan said at a Federal Deposit Insurance Corp. board of directors meeting. As part of the proposed rulemaking, the FDIC is seeking information on what assets will likely be consolidated and how it will impact lending and securitization activities. The proposal also asks whether a phase-in of risk-based capital requirements over four quarters is needed. Comments are due in 30 days. The new accounting rule goes into effect at the yearend. Separately, the FDIC agreed to extend its Temporary Liquidity Guarantee Program until June 30, 2010. This program provides unlimited insurance for servicer accounts and other non-interest bearing accounts.

There was a two basis point increase in the average rate for the 30-year fixed-rate mortgage over the previous week, according to the Freddie Mac Primary Mortgage Market Survey for the week ended Aug. 27. The current rate of 5.14% with an average of 0.7 points is still well below the average rate of 6.4% for this week one year ago. The 15-year FRM had a similar increase to the 30-year FRM as this week it averaged 4.58% with an average of 0.7 points, up from last week when it averaged 4.56%. Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 4.67% this week, with an average of 0.6 points, down from last week when it averaged 4.57%. One-year Treasury-indexed ARMs averaged 4.69% this week with an average of 0.6 points, unchanged from last week. "Long-term mortgage rates were barely changed this week, remaining historically low, which is helping to sustain a high level of affordability in the home-purchase market," said Frank Nothaft, Freddie Mac vice president and chief economist.

In a few weeks California will move to implement the federal Secure and Fair Enforcement for Mortgage Licensing Act which means individuals will have to obtain their own licenses if they want to operate as loan brokers. According to the California Mortgage Bankers Association, individual loan officers can no longer latch onto a company license and must obtain their own. A spokesman for the trade group noted the "act should pass here in the next few weeks, which will be a much bigger change than in some other states that already individually license LOs." California also is working on major legislation to reorganize and consolidate all the financial/real estate agencies and departments, and create a new consumer-focused department but no further action is expected until next year.

The Federal Reserve Board is now seeking public comment on a Truth in Lending Act proposal that could completely change the way most mortgage brokers and loan officers are compensated. The proposed rule pushes the industry toward paying originators a flat fee that is stated upfront and cannot be increased due to changes in the interest rate or changes to other loan terms. Consumers can still finance closing costs and origination fees, "provided this does not affect the amount the originator receives for the transaction," the Fed says. If finalized, the TILA proposal will "dramatically alter compensation for all mortgage originators, whether they are loan officers in retail operations or mortgage brokers," said Brian Chappelle, a mortgage banking consultant with Potomac Partners in Washington. Compensation based on loan volume, the performance of loans delivered by an originator or hourly wages is permissible under the proposal. The Fed is specifically seeking comment on whether it should allow compensation based on the loan amount, which is not an uncommon practice. The comment period on the 195-page proposal ends Dec. 24. The Fed also issued a separate TILA proposal that would create an entirely new disclosure regime for home-equity lines of credit and new safeguards for consumers. The comment period on the HELOC proposal also ends on Dec. 24.

The Federal Deposit Insurance Corp. board of directors has approved a policy statement that will allow private equity firms to purchase failing banks and thrifts provided they operate the new institution for at least three years and maintain a 10% capital ratio. The FDIC originally proposed a steeper 15% capital requirement, which is three times the normal level for a bank. But it was reduced because of concerns the higher capital requirement would scare private investors away and increase FDIC's bank resolution costs. Comptroller of the Currency John Dugan noted that the FDIC has already realized savings of $1 billion by selling two failed institutions to private investors. Mr. Dugan voted for the policy statement due to the reduced capital requirement and because FDIC chairman Sheila Bair agreed to review the policy's impact after six months. The FDIC chairman stressed that higher standards should be required for investors who don't have a proven record of operating banks and because of the "generous" loss sharing arrangements the FDIC is providing investors to acquire troubled assets. The FDIC has taken more than 81 failed banks this year at a cost of $20 billion to the insurance fund.